Investing apps have been becoming increasingly popular for some time. But since the pandemic struck, their popularity has boomed even more. With many individuals working from home or in lockdown, the opportunity to explore these investing apps has increased. This is especially true for college students and young adults who traditional may not be as interested. The ease of use of these platforms are attracting millions who might normally not invest. And as a result, the number of financial apps has grown significantly.
While this level of investment activity is exciting in many ways, there are some concerns. There are risks of investing no matter what type of platform is being used. Likewise, a lack of knowledge, experience and market information can undermine any potential success. Particularly for the beginner investor, these pitfalls are real and could result in financial losses. In addition, a bad experience now using investing apps could deter long-term commitments to saving and investment in general.
“Whatever channel you use to select, buy or sell investments, you still need to have clarity on your saving/investing objectives, timeframes, and level of risk that you can tolerate.” – Nan J. Morrison, President and CEO of the Council for Economic Education
Trendy Investing Apps and the Risks of Investing
A number of investing apps have been available for years, so this concept is not new necessarily. Companies like E*Trade, Charles Schwab, TD Ameritrade and others have well-recognized mobile platforms. Likewise, these have high ratings by consumer reviews and offer a number of different financial products from which to choose. For the seasoned investor, these are solid considerations for managing a financial portfolio. But for whatever reason, they are not as social trendy as others. A number of new startups offering financial apps now exist and are appealing to younger individuals.
One of the most popular investing apps today is one called Robinhood. Since the first quarter of 2020, Robinhood has gained over 3.1 million users to its platform. In addition, over half of these new users are beginners in terms of investing. And with a median age of 31 years, they are not as savvy in knowing the risks of investing. This is evident in Reddit forums and other social media chats where college students discuss their investment habits. In fact, Robinhood received notable press for a student who lost over $730,000 in options and subsequently committed suicide.
Other trendy investing apps also exist that rival Robinhood for recent popularity. For example, Acorns is a micro-investing app that allows small investments for a fixed monthly fee of $1-$5 a month. This platform allows investors to link their account to a credit or debit card. Once linked, purchases are rounded up to the nearest whole dollar amount, and the “change” is invested. Acorns also addresses concerns about the risks of investing by letting users choose their level of risk tolerance. Acorns also has a number of products including ETFs from which to choose. This allows immediate diversification without the hassle of managing individual stocks.
For the environmentally conscious investors, Stash is another one of the newer investing apps of interest. It is also a micro-investing app platform, and it too allows users to deposit “change” from purchases into their account. However, Stash offers products that allow investors to choose “green and clean” stocks and funds. This is appealing to many younger investors as well as others. But the risks of investing may not be well recognized in the process. Also, like Acorns, Stash charges a set monthly fee, which can definitely undermine earnings.
“These [newer trendy] apps make money from your invested cash, payment from order flow, and more expensive ‘upgrades’ like leverage and out of hours trading. Since that’s how they make money, these apps are often designed to encourage you to react emotionally to your investments. Their interfaces maximize the emotional impact of seeing the number on-screen—almost like being in Las Vegas—and that can encourage reckless behavior.” – Dan Egan, Betterment Investing App
Information to Reduce the Risks of Investing
The risks of investing on these newer investing apps are twofold. One, the platforms’ models tend to encourage emotionally-based reactions instead of logic-based decisions. Also, some fail to provide tools to assist users in advancing their investment knowledge. As a result, users of investing apps like Robinhood, Stash and Acorns turn to social media for guidance. And this is where the risks of investing can climb significantly. Numerous reports describe many beginner investors making unwise choices that turned out badly. And a few bad experiences can definitely leave a sour taste in your mouth.
In addition to investing apps, however, other investment information apps are making headlines. Commonstock, a San Francisco startup, has received $9.7 million in seed money for its platform development. Commonstock creates a mobile forum where users have access to experts, market news, and targeted investors. But it also allows a social component where groups can chat and share insights. In fact, Commonstock allows friends to invest together, copy one another’s investments, or receive friend investment alerts. All of these features are designed to reduce the risks of investing. And while Commonstock will eventually go to a subscription model, it is currently free for users.
“We are at the start of a massive explosion of investing. Investing has gone fully mainstream, but now I want to make sure the knowledge part of investing explodes along with it.” – David McDonough, Commonstock App
A Balanced Approach to Mobile Investing
Without question, investing apps that streamline financial opportunities is both exciting and intriguing. These have the potential to introduce a wide array of investors into the market. But at the same time, some caution must be used. Beginner investors need both guidance and knowledge to reduce the risks and investing. These types of experiences will encourage continued investing behaviors into the future rather than deter them. Certainly, many investing apps provide these supports as does companies like Commonstock. Thus, it’s important to select a financial platform wisely. Trends are worth noting and exploring, but ultimately, investing apps that offer comprehensive advice and products are likely to best.
Finance is an important Pillar in living a Bold Life. For more on the Seven Pillars, check out Ed Kopko’s PROJECT BOLD LIFE: The Proven Formula to Take on Challenges and Achieve Happiness and Success.